Mandatory Economics for US Supreme Court Justices

That mandatory health insurance coverage makes sound economic sense, and has had broad support from economists of all persuasions for decades does not seem to be enough to sway Judges John Roberts, Antonin Scalia and Samuel Alito of the US Supreme Court. Alarmingly, Scalia does not seem to understand the difference between consumption of insurance—the payment in advance for coverage from ex-post unaffordable catastrophic events, and the consumption of broccoli—something cheap that is enjoyed immediately. All that seems to matter to him is a vague argument that compulsion is government overreach.

What kind of sophistry of argument they have to invent when the Pandora’s box of analogous cases hits their doorstep? The US, like other countries, mandates that its citizens pay for their military. US citizens cannot insist on reducing their tax bill by the share of military spending in government expenditure. As with health care from emergency departments, citizens know they will be protected by their military regardless of whether they pay for it. Directly analogous is the provision of roads, public hospitals and schools, the cost of courts, Supreme Court Justices salaries, police and public servants, etc. Citizens are forced to pay for these things also and are not allowed the freedom to opt out precisely because we know they cannot realistically be excluded from benefiting.

Even if it is a stretch for these Justices to understand the logic behind these things, I wonder what will happen to the compulsory auto-insurance that many states in the US impose on their citizens. Can States in the US do unconstitutional things like that?

If the US Supreme Court rejects the Affordable Health Care Act on the basis of the mandate to purchase, it will not only be a triumph of legal sophistry over economic logic, but an act of the most extreme judicial overreach in that Court’s history.

To compare mandatory health insurance to mandatory car insurance is not a fair comparison. In order to drive your car, you must enter into a contract with the state government by registering your vehicle. So you have relinquished your right to choose whether or not to insure yourself. The same choice is not available with health insurance.

@Terry
I disagree it is an unfair comparison. Somebody who might want to drive but not pay insurance can choose not to enter into the contract and drive in that state or can move to another state. Similarly, somebody who does not want health insurance in the US under the mandate can move to Mexico or somewhere else: there is a margin of choice even though it is extreme. Beyond the issue of degree, the analogy is exact.

@Terry With or without a mandate, you cannot relinquish your choice of whether to be insured or not, because you cannot opt out of ever getting sick/injured! But you can opt out of ever driving. The mandate simply makes people pay for what they, in reality, already consume. Most of the rest of the world has figured this out; it is truely amazing to watch the US Supreme Court struggle with it.

@Terry There might be one way the two cannot be compared. With health insurance, you have already relinquished your choice of whether to be insured or not – you cannot opt out of ever getting sick/injured! But you can opt out of ever being injured driving – by not driving. As Rohan points out, an exception is to opt out of both – by moving to Mexico. The reality is that the mandate simply makes people pay for what they already consume. Most of the rest of the world has figured this out; it is truly amazing to watch the US Supreme Court struggle with it.

How about we have mandatory legal education for economists, as these questions are largely about constitutional law and not about economics. And if one wants to write a blog post in such a highly confident tone they should make sure they know what they’e talking about. I’m an economist so i’ll mangle some of this, but here goes. If congress passes a law, it has to offer a constitutional rationale. It has the power to tax, but this is not a tax, as the whole point is everyone gets health insurance and no-one pays the penalty, hence it raises no revenue. We raise money under the power to tax to provide for public goods such as the military. So its justifying it under the commerce clause. This clause is used to justify a great number of laws and its scope has expanded very widely since the 1930’s. Now, if every possible activity is taken to involve interstate commerce in some vague indirect way, then congress has the power to do anything it wants, and the constitution provides no limits. So the court is asking for a limiting principle. How far can the commerce clause extend. If congress can make everyone purchase health insurance, what can’t it make them purchase? Here is where the famous broccoli example comes in. What are the special characteristics of health insurance that make it different from other goods in terms of its effect on interstate commerce. There is a national broccoli market and demand and supply in different states will affect prices, so why can’t the federal government make everyone eat broccoli or face a penalty. The point of the question is to define those limits. It’s not about what the government want to or should do, but about what it can do. I don’t think the argument is strong enough to strike down the law, but these are important questions. Particularly so in the US, where they have a much higher regard for states rights and limited government than we do in Australia. And of course there is a lot of politics involved and the conservative judges are looking for excuses to vote no and the liberal judges are solidly behind the law, but the legal arguments matter a great deal. As for the car insurance example, yes, of course states can impose mandatory insurance if it doesn’t contravene state constitutions. Like in Australia, the states originally created the federal government, which was given carefully enumerated powers. So of course states can do things the federal government can’t. Under the commerce clause, the federal government can only pass laws which have a substantial effect on inter-state commerce. Perhaps the federal government could pass a mandatory car insurance scheme under the current wide interpretation of the commerce clause.

As economists we view laws, including the Constitution, through the prism of economic principles. Powers are limited lest they are abused to the detriment of the economy. So the important point here is what abuse will this engender beyond what can be engendered using other instruments? Given that an equivalent instrument exists in the form of taxation, it is ludicrous to argue that it is an abuse to allow the use of this clause for mandating health reform. We could use the tax system to mandate that people purchase broccoli too: just make their income tax rate 100% if they don’t. And congress can vote against using the commerce clause if they feel it is too much like excessive taxation.

As economists we are aware of the equivalence of economic instruments. Lawyers–in particular supreme court justices Scalia and his ilk, need to be aware of them too.

Rohan isn’t making a legal argument, he’s making an economic argument. I’m sure the legal arguments are all fascinating for legal buffs but unfortunately society has to deal with the economic/social/political consequences of decisions made under the guise of ‘legal reasoning’. And let’s be frank, ‘legal reasoning’ is just personal opinion under the guise of pseudo-intellectualism, there is no science behind it.

I would be much gladder if legal decisions were informed by economic and scientific reasoning than by ‘legal reasoning’, then at least we can evaluate decisions without going through layers of pretentiousness.

Thanks @Rohan, i agree judges should have a better awareness of economic concepts. There are arguments at the moment as to whether one should use economic terms in legislation, as many judges have difficulty knowing what they mean or its difficult to express concretely. As to the tax example, a tax on not consuming brocolli wouldn’t be defined as a tax, but as a penalty. i think there’s a real economic difference between the two. As for the difference between health insurance and brocolli, i think there are two key differences. One is that everyone is active in the health care market, as it will be provided if not purchased by going to a hospital. Second is that insurance markets suffer from adverse selection, so there is a much greater economic impact from not having a mandate. I think that’s probably enough to justify it under the commerce clause. I have two somewhat contradictory views about all this. It’s dangerous to interpret constitutional clauses too widely, as the whole point is to give defined limits to government action. And that political questions, such as health care, should be solved in the political arena, that is through elections, and courts should be pretty reticent to step in.

It’s been an interesting read of one professional specialist’s (Economics) objections to another professional specialist’s (Law) opinion. Perhaps more generalists would improve the arguments? One point comes to mind: had Obama implemented a “socialized” medical scheme as in Canada or Australia where everybody is entitled to services covered under compulsory taxation would that pass muster in the US Supreme Court? (Leaving aside the political difficulties of such schemes in the US.)

As I understand their argument, STATES have the power to enforce mandates – its only the Federal government that can’t. So the car registration analogy falls apart.
But still, it is a bizarre distinction between a”mandate” to pay for health care and a “tax”. Of course everyone knows that if this legislation had been signed by a President Romney rather than a President Obama the case would never have been heard. It is not merely a “conservative” court – it is an utterly partisan one.

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